Abstract
This paper analyzes the relation between network linkage and firm performance through the intra-business group related-party transactions, and also explores whether the network linkage could be optimized. It is listed on the Taiwan Stock Exchange over 2006-2008 by using financial information for business groups. For whole samples, we find a U-shaped relation between ROA and related-party purchases network linkage, and there is an inverted-U-shaped association between related-party receivable-payable network linkages and debt ratio. We also find the sales expenses ratio is positively correlated with the number of related-party buyers, but negatively correlated with the related-party sales ratio. Moreover, for high related-party sales and high related-party purchases group, it demonstrates an inverted-U-shaped association between related-party sales and ROA, and the related-party receivable-payable gap ratio is negatively correlated with debt ratio. While for low related-party sales and low related-party purchases group, related-party purchases network linkage and ROA display a U-shaped characteristic, and there is a U-shaped association between total receivable-payable gap ratio and debt ratio.
Highlights
As the economic environment changes with time, firms can no longer rely on their own resources to compete in the market
This paper analyzes the relation between network linkage and firm performance through the intra-business group related-party transactions, and explores whether the network linkage could be optimized
We find the sales expenses ratio is positively correlated with the number of related-party buyers, but negatively correlated with the related-party sales ratio
Summary
As the economic environment changes with time, firms can no longer rely on their own resources to compete in the market. Under the trend of liberalization and internationalization, firms are facing harsher competition pressure; to expand production scale, diversify risk, expand the market, and increase economic efficiency and competitive advantages, they strengthen the linkage between firms through mergers, investments and cross holdings, to form affiliated enterprises or large business groups; and, through the cooperative relationship between related-parties, they can gain beneficial resources and decrease transaction costs, thereby increasing the firm’s asset allocation efficiency and this, in turn, maximize the firms’ profit and value (Yeh et al [28]; Gordon et al [29]; Cheung et al [30]).
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